The Australian and Indonesian governments have agreed on a $1 billion aid program over the next five years in response to the tsunami that devastated areas of South Asia on December 26.

The Australian Prime Minister, John Howard, flew to Indonesia yesterday. The following statement was released overnight.

AUSTRALIA-INDONESIA PARTNERSHIP FOR RECONSTRUCTION AND DEVELOPMENT

I am pleased to announce that President Susilo Bambang Yudhoyono and I have together agreed to form an Australia-Indonesia Partnership for Reconstruction and Development. This is significantly different in scale and approach from any previous aid effort.

The partnership reflects the increasingly close relationship between our two countries and our desire to work together to help Indonesia recover from the tremendous human and economic damage it has sustained as a result of the tsunami of 26 December. It is a program of long-term, sustained cooperation and capacity building. It is focused on economic reconstruction and development.

The Australian Government will contribute $1 billion over five years to the partnership. These funds will be additional to the Australia’s existing development cooperation programme and will bring Australia’s commitment to Indonesia to a total of $1.8 billion over five years. While there will naturally be a clear focus on the areas devastated by the Tsunami, all areas of Indonesia will be eligible for assistance under the partnership.

The $1 billion of new money will consist of equal parts of grant assistance and highly concessional financing.

The grant aid will be directed at areas of priority need in Indonesia. It can be expected to encompass small-scale reconstruction to re-establish social and economic infrastructure in affected areas, human resource development and rehabilitation. It will also include a large scholarship programme, providing support and training in areas such as engineering, health care, public administration and governance.

The concessional financing component can be expected to be directed to reconstruction and rehabilitation of major infrastructure in the first instance. It will provide $500 million interest-free for up to 40 years with no repayment of principal for ten years.

President Yudhoyono and I will jointly oversee the implementation of this package, with the advice and assistance of our respective foreign ministers and an economic minister from each country. A Joint Commission will be established, with equal participation on its working groups and secretariat.

This is an historic step in Australia-Indonesia relations. It is the single largest aid contribution ever made by Australia, focused on the long-term and founded on partnership. In addressing the urgent humanitarian needs of those afflicted by the tragedy, it will also serve to bring our countries and peoples closer together. It is a strategic commitment to raise the living standards of the people of Indonesia.

As part of this program of co-operation the Indonesian Government has welcomed the secondment of Australian officials to the Indonesian co-ordinating agency for this disaster, BAPPENAS.

Out of the appalling tragedy of the Tsunami has emerged an opportunity to build a new future. President Yudhoyono and I share a view that the Australia Indonesia Partnership for International Development responds to that opportunity.